United Kingdom consultation aims to end 75% tax rate on US LLC members

What the consultation proposes

HM Treasury and HMRC opened a formal consultation June 10 on taxing UK-resident individuals who own US LLCs and similar reverse hybrid entities, with responses due July 31, 2026. The preferred fix would treat US LLCs as tax-transparent in the UK when they are already transparent in the US, matching how the two systems classify the same profits.

Under current HMRC guidance issued in December 2023, US LLC profits belong to the LLC first and members are taxed in the UK only on distributions, which are treated like dividends from an opaque company. The US, meanwhile, taxes the underlying profits as they arise. That mismatch blocks foreign tax credit relief and can push effective combined tax rates above 75% for UK-resident individual members, according to the consultation.

The proposed rule would be mandatory rather than elective. Individual members of a trading LLC would be taxed like partners in a partnership; single-member LLCs would be treated as sole traders or direct investment holdings. Distributions would generally not be taxed again as dividends.

Who falls inside the scope

The proposal targets UK-resident individuals who hold interests in US LLCs, including UK nationals, US citizens living in the UK and foreign nationals who have become UK tax-resident while running businesses through an LLC. Consulting, SaaS, e-commerce and professional services operators are the typical profile.

Digital nomads who spend enough time in the UK to trigger tax residence and operate through a US LLC would qualify for the transparent treatment if the legislation passes. Non-resident nomads and short-term visitors fall outside the scope. Corporate members of US LLCs are carved out and stay under existing UK corporate tax rules, preserving group reliefs.

The consultation also flags other non-UK reverse hybrid entities as potentially in scope, though specifics are still open.

What affected owners can do now

No start date has been set and any new rules would apply prospectively rather than retroactively. Some advisers expect alignment with Budget 2026 if the policy proceeds.

UK-resident LLC owners can submit responses to HMRC by July 31, 2026 and should keep records of US tax already paid on LLC profits in case credit becomes available under a transparent regime.

Read our full United Kingdom guide for the complete picture.